7 June 2009 | Brazil Economic Scan

7-June-2009

Brazil Economic Scan

In this edition: Brazil likely to cut the Selic rate by at least 75 bps, Nestle Brazil says coffee and sugar prices may rise, Bradesco builds on retail franchise in Banco Ibi acquisition, Brazil bond yields jump on speculation of end to rate cuts, Vale leads gains in metal stocks following Rio Tinto deal collapse.

Top headlines

Brazil Likely To Cut Base Rate By At Least 75 BPS

• Amid weak economic activity and tame inflation, the Brazilian Central Bank likely will cut its Selic base interest rate by at least 75 basis points next week. Of 19 analysts consulted in a Dow Jones Newswires survey, 10 said they expect the central bank to cut the Selic rate by 75 basis points from the current level of 10.25% annually, while 8 said the rate will likely fall 100 basis points. Only one is expecting a milder 50-point cut.
• Currently, the rate stands at its lowest level ever, amid Brazilian government efforts to combat effects of the global crisis on the Brazilian economy. So far this year, the monetary authority has cut the Selic rate by 350 basis points. The bank will decide on the Selic rate June 10. (Wall Street Journal)

Nestle Brazil Head Zurita Says Coffee, Sugar May Rise

• Nestle SA, the biggest buyer of Brazil’s coffee and sugar, said prices for the commodities may increase this year as growers worldwide fail to invest in expansion and demand for food increases faster than output.
• Food commodity prices are climbing, gaining +8.6% this year after the global credit crunch and surging fertilizer prices prompted growers in the most important producing nations to pare output, Bloomberg’s Food & Fiber Index shows. Prices are still down -5.7% from a year earlier. (Bloomberg)

Brazil's Bradesco Advances In Credit-Card Industry

• With an eye on strengthening its credit-card business, Brazil's Banco Bradesco SA (BBD) Friday announced the acquisition of Banco Ibi, the consumer-finance arm of major retailer C&A.
• Bradesco will pay for Banco Ibi for stock worth some 1.4 billion Brazilian reals ($720 million), mindful of the bright prospects for the local retail sector. Bradesco will pay with its own shares, representing 1.6% of the bank's capital. (Wall Street Journal)

Brazil Bond Yields Jump on Speculation Rate Cuts May End

• The yield on bonds due January 2010 climbed eight basis points, or 0.08 percentage point, to 9.19% at 5:41 p.m. New York time. Brazil’s currency dropped -1.2% to 1.9615 reais per U.S. dollar. The Bovespa stock index slipped -0.2%.
• “There’s an expectation the central bank’s statement that follows next week’s rate cut will bring a more hawkish tone, signaling that the rate-cutting cycle is near its end,” said Nick Chamie, head of emerging-market research at RBC Capital Markets, in a telephone interview from Toronto. (Bloomberg)

Vale Leads Gains for Metal Stocks as Rio Scraps China Deal

• Vale SA led gains for Brazilian metal producers after rival Rio Tinto Group scrapped an investment from Aluminum Corp. of China, easing concern that China would import less from the world’s biggest iron ore miner.
• “China is Vale’s biggest client and acquiring a natural resources company could have been a big danger for the company,” said Bernardo Lobao, a metal analyst at Rio de Janeiro-based BNY Mellon Arx, which manages $2.2 billion. “It distances the possibility that China would buy Rio Tinto.” (Bloomberg)

Source: Brazil Economic Scan